Idled Gulf Rigs Head For Africa

Commerce: What does it say about America’s investment climate when the Republic of Congo now attract oil rigs that once drilled the Gulf of Mexico? That’s the effect of the Obama administration’s nonstop bid to halt production here.

As millions were enjoying the World Cup last weekend, powerful engines began churning the waters of the Gulf of Mexico as Diamond Offshore Drilling began pulling its huge floating rig on a 60-day trip to the Republic of Congo.

Congo is hardly the place that springs to mind for the quality of its investment environment. But because of the Obama administration's nonstop efforts to halt offshore drilling through one executive order after another, that is now the reality.

On May 27, in the wake of the BP oil spill that began three weeks earlier, the Department of the Interior issued a blanket ban on all drilling deeper than 500 feet. When a federal judge threw that out as unjustified, the administration came right back with a new diktat that amounts to the exact same ban.

For rig companies, such pigheadedness gave the game away: The Obama administration is determined to halt offshore drilling by any means necessary. And for energy companies, the only rational response is to pull out.

"As the uncertainty about continued deep-water drilling in the (Gulf of Mexico) persists, we must consider alternatives that allow our deep-water assets to remain employed," Diamond Offshore's CEO, Larry Dickerson, explained in a press release.

Diamond Offshore had already moved one of its big floating rigs to the Nile River delta of Egypt a few days earlier, and now another is heading to the Congo. These facilities rent for $510,000 a day  a lot of money to lose as rigs await the Obama administration's "six-month pause" to run its course.

Industry analysts estimate that another five of the 33 rigs that have been directly idled will be leaving the Gulf for places with better business climates.

Amazingly, one of these places is the Republic of Congo, a country in the middle of a war with Ugandan rebels and busy dealing with 200,000 refugees. The country ranks 169th out of 179 in the Heritage Foundation/Wall Street Journal's 2010 Index of Economic Freedom. That's low even by African standards, with major deficits in property rights, freedom from corruption and even investment freedom.

Still, it outranks the U.S., where there is no drilling at all. So, in two months' time, Diamond's Ocean Confidence rig, moving across the turbulent Atlantic, will arrive there for high-tech offshore work as far as 35,000 feet below sea level.

Fact is, it's still a better investment climate than the Gulf of Mexico. Measured in lost profits, the Obama administration's six-month moratorium effectively amounts to a six-month expropriation. Meanwhile, the Republic of Congo, which relies on oil earnings for 65% of its GDP, will gladly enable Diamond Offshore to earn $234 million on three projects if all goes well.

One glance at the offshore rig data above show that this move is part of a bad picture.

According to RigLogix, the U.S. offshore rig fleet of 93 rigs of different types is only being used to 38% of capacity. In the Alaskan offshore, none of the four rigs is under use. In the remaining parts of the U.S. offshore, only two of the 28 rigs are in use, a grand total of 7%.

By contrast, 148 of the North Sea's 159 rigs are under contract, for a 93% utilization rate. Off the coast of Brazil, 68 of the 79 rigs are in use, for an 86.1% utilization rate. West Africa, which includes Republic of Congo, has 67% of its 76 rigs in use. Even Mexico, much maligned for not investing and squandering opportunities, utilizes 52% of its 62 rigs.

Just as the U.S. is falling behind in exports, amounting to only 17% of GDP as the rest of the world sails by with higher numbers, the 34% rig utilization shows how badly we're falling behind offshore.

The United States should be the global leader on both fronts. Instead, an arbitrary offshore drilling moratorium pushes the country further back in the pack. This is hurting the Gulf of Mexico's economy even more than the BP spill, and now it's giving Congo a competitive edge over us.

All in all, a sorry state of affairs that the U.S. and its president need to correct quickly. It makes no sense to sit and watch as our offshore energy production is offshored.

See Also

Politics: The White House has denounced an anti-abortion group's videos of Planned Parenthood's activities as "fraudulent" and circled its wagons to defend the indefensible. What kind of White House is this?For an institution that might argue that it doesn't have a dog in this fight, the White ...

Iran Deal: After initially refusing, the United Nations' International Atomic Energy Agency will brief senators Wednesday. Are its nuclear monitoring practices kept secret because they're inadequate?Yukiya Amano, the director general of the IAEA, until Friday was refusing to brief senators on ...

Corruption: The third installment of released emails fell hard Friday on the Hillary Clinton campaign. If her candidacy lasts until the end of the summer, there's much more wrong with this country than we thought.Friday had to be an extraordinarily trying day for the Democratic front-runner. On the ...

Regulation: As businesses struggle to stay open and lay off workers, the Environmental Protection Agency is preparing one of the biggest hiring binges in America outside of Google. Good news? Hardly.Barack Obama's EPA has announced it will try to hire 800 new regulators over the next several ...

Taxes Vs. Prosperity: The Real Wedge Issue Ronald Reagan died 11 years ago, and his presidency ended a quarter century ago. But my, how his tax-cutting ideas live on. The living legacy of Reaganomics, or supply-side economics, is that tax rates keep falling all over the world. Imitation really is ...

About Investor's Business Daily

Investor’s Business Daily provides exclusive stock lists, investing data, stock market research, education and the latest financial and business news to help investors make more money in the stock market. All of IBD’s products and features are based on the CAN SLIM® Investing System developed by IBD’s Founder William J. O’Neil, who identified the seven common characteristics that winning stocks display before making huge price gains. Each letter of CAN SLIM represents one of those traits.

Select market data is provided by Interactive Data Corp. Real Time Services. Price and Volume data is delayed 20 minutes unless otherwise noted, is believed accurate but is not warranted or guaranteed by Interactive Data Corp. Real Time Services and is subject to Interactive Data Corp. Real Time Services terms. All times are Eastern United States. *Reflects real-time index prices.